How Much Can I Borrow? Understanding Your Borrowing Capacity and How to Maximise It

When you’re working out how much you can borrow, the answer isn’t just a multiple of your income. Lenders look at your full financial picture through a serviceability assessment. That assessment includes your income, your regular expenses, and any other debts you carry — and it applies a buffer to make sure you could still manage the repayments if interest rates rose.

At Arrivau, we explain the key drivers of borrowing capacity so you can understand the numbers before you apply. This is general information, not personal advice, and Arrivau does not promise loan approval or a specific borrowing outcome.

What determines how much you can borrow?

Lenders generally start with your income — your salary or wages, plus any rental income, bonuses or other regular earnings they are willing to recognise. From there they subtract your ongoing commitments: other loan repayments, credit card limits (even if you don’t owe anything on them), HECS-HELP debt repayments, child support or dependant costs, and living expenses based on either your declared spending or a standard benchmark.

They then apply an assessment rate — typically the loan’s actual interest rate plus a 3% buffer under long-standing APRA guidance. The idea is simple: if you can service the loan at the higher rate, you should be able to keep up with repayments even when rates move.

The 3% buffer and why it matters

The 3% buffer is one of the biggest levers on your borrowing capacity. Even if you’ve found a loan with a rate of 6%, lenders will usually test whether you could afford repayments at 9% or thereabouts. A higher buffer reduces the maximum loan you’ll be approved for, but it’s there to give you a margin of safety.

Everyday factors that lower your borrowing power

Some common commitments can shrink your borrowing capacity more than you’d expect. Understanding them puts you in a better position to plan.

Credit cards

Lenders don’t just look at what you owe on a credit card today. They calculate the repayment based on the credit limit of every card you hold — often 3–3.8% of the limit per month. That means a card with a $10,000 limit can reduce your borrowing power by tens of thousands of dollars, even if you pay it off in full each month. Reducing or cancelling unused cards before you apply can make a meaningful difference.

HECS-HELP debt

A HECS-HELP debt doesn’t work like a personal loan, but it still reduces your after-tax income, and lenders treat compulsory repayments as a non-negotiable expense. The higher your income, the larger the repayment percentage, so it’s worth checking how your current HECS balance affects your net pay and your borrowing capacity.

Dependants and living costs

If you have children or other dependants, lenders apply a higher assumed living expense figure, reflecting the extra costs of raising a family. That directly lowers the surplus income available for mortgage repayments. The exact impact depends on the lender’s benchmarks and the number of people in your household, but it’s one of the factors that can catch applicants by surprise.

Steps to improve your borrowing capacity

You can take some practical steps now to strengthen your position before you approach a lender.

1. Reduce or cancel unused credit cards. Lowering your aggregate credit limit lifts your serviceable surplus immediately.
2. Pay down other debts. Personal loans, car loans and buy-now-pay-later facilities all chew up borrowing power.
3. Review your living expenses. Lenders scrutinise your bank statements. Demonstrating you can live within your means helps your application.
4. Check your HECS situation. While you may not be able to change your repayment rate, knowing the figure lets you model your capacity more accurately.
5. Consider a longer loan term. A 30-year term gives lower monthly repayments and can increase your assessed capacity (though you’ll pay more interest over the life of the loan).

Comparing loan offers

Once you understand your borrowing power, Moneysmart recommends comparing loans from at least two different lenders. Check the interest rate, the comparison rate, monthly repayments, and any application or ongoing fees. Features such as offset accounts and redraw can save you interest, but only if you’ll actually use them — otherwise you might pay extra for options you don’t need.

How Arrivau can help

Arrivau is a licensed Australian mortgage broker. We can talk through your borrowing capacity, explain how lenders view your financial situation, and help you compare loan options. We aren’t a lender, and we can’t guarantee approval or a particular interest rate. What we can do is give you the general information you need to make an informed decision.

If you’d like to understand your borrowing power more clearly, reach out and we’ll walk you through the numbers.